There are two reasons why the aluminium metal markets are not making long-term bets on the price of the metal, the alumina required to make it, and the share prices of the metal producers, including Russia’s aluminium monopoly United Company Rusal. The first reason is that the US Treasury Secretary Stephen Mnuchin (lead image, right) has decided to eliminate Rusal’s controlling shareholder, Oleg Deripaska (left), but leave Rusal to carry on its business without him. The second reason is that President Vladimir Putin cannot make up his mind on whether to sacrifice Deripaska for the good of the company and Russia’s metal industry. If Putin refuses Mnuchin’s deal, the US sanctions to put the company out of business, announced on April 6, will be enforced in full. Pricing the consequences now of then is next to impossible.

According to Mnuchin’s statement on Monday, “RUSAL has felt the impact of U.S. sanctions because of its entanglement with Oleg Deripaska, but the U.S. government is not targeting the hardworking people who depend on RUSAL and its subsidiaries. RUSAL has approached us to petition for delisting. Given the impact on our partners and allies, we are issuing a general license extending the maintenance and wind-down period while we consider RUSAL’s petition.”

On Tuesday Putin responded through his spokesman Dmitry Peskov. “so far it is difficult to say how consistent our American counterparts are in their approach. We still consider these sanctions to be illegal. We believe that in relation to a single company such actions are akin to asset grabbing.”

That is Deripaska himself doing the talking. The only man in Russia who thinks that state recovery of a heavily indebted asset from an oligarch is an asset grab is Deripaska. Putin has yet to disagree. Mnuchin has given Putin six months until October 23 to make up his mind.

The President has been masking his indecision by spending an unusual amount of time away from the Kremlin, at the official dacha at Novo-Ogaryovo. He’s been there now since April 15. In April a year ago, Putin spent just one day at the dacha. Starting with his choice of a new prime minister and government, due after Putin’s inauguration on May 7, there is much more for the president to decide this year than last year; he wants to do so without as many eavesdroppers as there are in the Kremlin.

This month too, the Kremlin website has been publishing unusually little of Putin’s daily schedule.

Left, Dmitry Rogozin, deputy prime minister in charge of the military industrial complex and a candidate for prime minister, met the President on April 23; the Kremlin website reports they discussed satellite navigation. Right, Defense Minister Sergei Shoigu (left), another candidate for prime minister, and Chief of the General Staff Valery Gerasimov met Putin on April 20 in a discussion of fareast military exercises and “certain aspects of the situation in Syria”. One focusof their discussion was whether to deploy the S-300 to protect Syrian and Iranian forces from Israeli air attacks and risk direct Russian-Israeli combat. For the candidacy to be prime minister of Moscow Mayor Sergei Sobyanin and the formation of a war cabinet, read this.

“The RUSAL quandary cannot be fixed without Oleg’s departure, real or otherwise,” comments a London-based veteran of the Russian aluminium trade; he has worked with every major Russian in the business, including those whose assets Deripaska took for himself in the 1990s, and then retained through the foreign court litigations in the decade which followed.

“There are lots of sources of pressure on the US [Treasury] from interested parties throughout the market. The Guineans are at a loss to know what to do with their bauxite and Friguia [alumina refinery]. Similar problems are emerging everywhere. As Misha Chernoy [Michael Cherney] discovered, [President Boris’] Yeltsin left behind limits on the powers of persuasion which can be exercised on Deripaska. But if he goes, the ally [aluminium] market will have little problem in recalibrating once Rusal is dealt with. The US has only a small dog in this race; Putin has too many.”

After the sanctions announcement was issued in Washington on the Orthodox Good Friday, Deripaska said he would discharge his religious duties before making his assessment public. “The events that happened yesterday were unpleasant but not unexpected,” he claimed without allowing press questions. “The reasons for my inclusion on the sanction list are unjustified, ridiculous and downright absurd.”

Deripaska has yet to respond to the options presented by Mnuchin, at least not directly. Instead, he has been marshalling ministers of the outgoing government to publicly reject a state takeover of his shares or other variants of nationalization. He asked Finance Minister Anton Siluanov (right) to sound out Mnuchin, when Siluanov was in Washington last week. They agreed, according to leaks to the Moscow press, that the US is unhappy with the sudden rise in aluminium and alumina prices, and that Russia is unhappy at the sanctions imposed on the company.

Out of their negotiation came Mnuchin’s agreement to distinguish publicly between Deripaska and Rusal; allow a six-month extension for Rusal to trade metal with Americans, plus a promise the Treasury will consider Rusal’s petition to be delisted. This concession has restored the production chain for non-US companies in Europe, Africa and Australia to supply Rusal’s smelters. It has avoided embarrassment for the Ukrainian regime in Kiev which wants to keep Deripaska’s alumina refinery in Nikolaev running at full capacity. It also allowed Americans to continue contracting for Rusal metal shipments. Mnuchin did not relax the ban on US investors and banks holding Rusal bonds and shares; they must sell by May 7.

For details of how the US Treasury mechanism operates for administrative review of sanctions listings, followed by court challenges, read this. US lawyers believe some Russian company applications for delisting stand a chance with the Treasury’s Office of Foreign Assets Control (OFAC), but they say Deripaska himself is a lost cause.

That’s not the view of Deripaska’s traditional backers at the Bloomberg agency. They are already promoting “a nominal sale to a proxy… a scheme that’ll satisfy the U.S. without dispossessing Deripaska.” Bloomberg, which has supported every oligarch who invested in New York real estate and other assets while Michael Bloomberg was mayor between 2002 and 2013, is proposing US sanctions according to a formula proposed by Mikhail Khodorkovsky, another Bloomberg favourite. This avoids sanctions on businesses, aiming instead at “patient investigative work to find out the identities of thousands of shadowy people getting rich off the Putin regime.”

Deripaska’s critics in the Russian government leaked to the Moscow business press this week that at a meeting of ministry officials with Deputy Prime Minister Arkady Dvorkovich, Rusal asked to preserve its profit margin (Deripaska’s dividend) by arranging state support of the cost of electricity. This is the largest component of Rusal’s cost of metal production; Rusal is the largest corporate electricity consumer in the country, with 6% of Russia-wide consumption; 30% of Siberian consumption. The way in which the cost of power to the smelters is regulated was analysed here.

The consensus on the government side at the Dvorkovich (right) meeting was that state assistance to Rusal should be focused on supporting shipments and sales, not on preferential power tariffs. Among the options on the table is one Deripaska proposed during the commodity price crash of 2008. Then he asked for the government to buy his aluminium and stockpile it. Nationalizing the metal then has been overtaken now by proposals to nationalize Rusal, eliminating Deripaska’s 48% control stake. For a review of the main options for Rusal without Deripaska, read this.

Deripaska also authorized a briefing for Reuters by company officials to explain how much they had done to anticipate US sanctions and prepare for them. “Senior executives, lawyers and aides working for the Russian tycoon met almost weekly to develop a game plan for different sanctions scenarios”, Reuters reported.

Among the options they considered was a switch out of US dollar payments for metal sales; and replacement of US equipment supplies with European sources. Declaring force majeure and suspending debt repayment to US and other international banks has not been reported by Reuters, although it’s an option for Moscow.

According to Reuters, “one of these people also said the aluminium company didn’t prepare well for the toughest sanctions, because Deripaska and the contingency team believed the United States would not want to disrupt the aluminium markets and because the U.S. had not levied sanctions against a publicly traded Russian firm before. Rusal had no plan in place for requesting immediate help from the Russian government to assist in refinancing debt or paying its employees, according to the three sources close to Rusal.”

Unasked by Reuters, and so unexplained by their Rusal sources, is why Deripaska decided to increase the volume of his sales to the US, thereby making his vulnerability to Washington much greater than it was five years ago, before the Ukraine war began and US sanctions commenced. In the five years from 2012 to 2017, Rusal financial reports reveal Deripaska decided to triple his sales to the US from $475 million to $1,440 million. Over the same period sales assigned to the Netherlands – sales out of the Rotterdam warehouses — dropped by the same magnitude from $2,498 million to $728 million.

Since Deripaska’s US entry visa was revoked in 2006, he has spent more than a decade and millions of dollars in lobbying payments, entertainment of American politicians, and other contributions in a failed effort to recover the visa. That story, and the names of the State Department officials who were on Deripaska’s side, can be followed here.

He also owns two Manhattan homes and a Washington mansion; without the visa, he cannot visit them. Local real estate recordsindicate Deripaska paid a total of $63 million for the three houses between 2006 and 2008.

The story of Deripaska’s lobbying can be followed through the name of his Washington agent, Adam Waldman, whose firm was especially close to the entourage of Hillary Clinton. Click to open.

What can have been the cause of Deripaska’s miscalculation of his exposure to the US aluminium trade? Washington sources claim Waldman has been misleading Deripaska into believing he could dissuade the Trump Administration by going to court to dissociate himself from Paul Manafort; for that case, read this. “If the test of a Washington lobbyist’s influence is his success,” a Washington insider comments, “Adam Waldman leads in reverse. Noone has been paid so much for so long to fail so consistently. Is Deripaska that gullible?”

A London trader says Deripaska’s redirection of Rusal metal to the US market was a profit calculation. “Rusal has done a good job in promoting their value-added business; that’s billets, foundry alloys, and rolling slabs. US primary aluminium production is very small – only three companies own operating smelters in the US today. US is largely duty free for aluminium imports (until now with the new tariffs). The EU has a duty on primary aluminium imports and an even bigger one of value-added aluminium imports. I don’t think Rusal’s increased volumes to the US are anything but market driven. The composition of their exports until very recently was around 425,000 metric tonnes [mt] primary aluminium plus 425,000 mt value-added metal. I am sure the recent increase in revenue has come from the value-added sector.”